Teva looks to Asia

Teva Japan and South Korea chairman Itzhak Krinsky tells "Globes" that China is an obvious target.

"Transferring a member of the senior management to Japan indicates the importance of the Asian market for Teva," Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) Japan and Teva South Korea chairman Prof. Itzhak Krinsky and head of business development Asia-Pacific told "Globes" in an interview.

Even before Krinsky moves to Tokyo in February, Teva has been going full steam ahead in the region. Last month, Teva signed an agreement with South Korea's Handok Pharmaceuticals Co., Ltd. (KRX:002390) to set up a joint venture, which will give Teva a foothold in the country. "We had already marked Korea as one of our targets," says Krinksy. "It has several important characteristics: the market is growing at 8-9% a year, prices for generics are good, and there is strong protection of intellectual property rights. The market has not yet undergone consolidation: the four big generic companies have 20% of the market, and the 20 largest companies have 50%."

South Korea's pharmaceutical market for both brand and generic drug is estimated at $14 billion a year, compared with $120 billion for Japan and $1.4 billion for Israel.

"Globes": The Korean government is trying to lower drug prices. Won't this make the market less worthwhile for Teva?

Krinsky: "In general, all countries are debating budgets and they are all reducing drug prices. Nonetheless, the starting price of an innovative drug that becomes a generic drug in Korea is 53.5% of the original product, which is higher than in any other country."

10% of Japan's generics market

In 2008, Teva expanded its activity in Japan by setting up a joint venture with Kowa Company Ltd., Teva-Kowa Pharma Co. Ltd., and bought out Kowa three years later. Nevertheless, Teva decided to operate in Korea through a joint venture. Asked if Teva planned to dismantle the partnership at some point, Krinsky says, "No. The Japanese venture was completely different. We had an opportunity to expand in Japan through the acquisition of Taiyo Pharmaceutical Industry, and we didn’t want to work through two arms in the same market. There was a procedure set out in the original agreement with Kowa."

Krinksy says that in the Korean venture, Teva will be responsible for production and R&D, and will benefit from Handok's access to 85% of Korea's doctors.

What are Teva's sales and market share targets in Korea?

"We have an internal target, which we will not disclose."

In Japan, Teva has declared a $1 billion sales target by 2015. Is this target still valid, even after Teva's change in management?

"We already have over $800 million in Japan, so I think that we'll meet the target."

Krinsky also marked out other business opportunities in Japan. "Teva has a global reach, and we can not only bring Teva products to Japan, but market Japanese products around the world," he says. "We're in talks with all the companies and we're trying to create these collaborations."

Teva Japan's competition comes from domestic generics companies, Japanese companies that partner with multinational big pharma companies like Pfizer Inc. (NYSE: PFE; LSE: PFZ) and Mylan Inc. (NYSE: MYL), and Japanese innovative pharmaceutical companies that are entering the generics business. Krinsky says that Teva's share of Japan's generics market is already 10%. However, competition is more diffuse in the Korean market, and multinationals have relative large shares of the market. "This does not hinder us from competing," he says, "because they are not outstanding manufacturers of generics."

Small, targeted acquisitions

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Krinsky's responsibilities include Teva's business development in the Asia-Pacific region and the search for new markets. China is an obvious target, and new president and CEO Dr. Jeremy Levin has marked it as a new strategic target. "China is one of the markets we're interested in, because of the size of its population and the market's future growth. Today, we have very limited business there in collaboration with a local company," says Krinsky.

How long do you think it will take Teva to have large-scale activity in China?

"That's hard to say, because there has to be the right opportunity, the right deal; not necessarily an acquisition, but maybe a joint venture like in Korea."

How is the global macroeconomic situation affecting business?"It's always more pleasant to do business in growing markets. There are markets, like Korea, China, and India, which are not too affected by the economic situation in the US and Europe, and are still growing. That is also true for Indonesia and the Philippines, which have much higher growth rates that in the West. The conditions are different in Japan. Growth is not high, but the government's emphasis on generics creates an opportunity for us."

In your previous job at Teva, you were responsible for presenting candidates for acquisition, and Teva has made quite a few. But when Levin succeeded Shlomo Yanai as CEO, he announced that there would be no more big acquisitions.

"I think that the decision was correct, both because there aren’t a lot of big generics targets in the world today, and because we've clearly defined our targets in our strategic plan. We've defined our areas of operations: the central nervous system, respiration, women's health, and NTE (new therapeutic entities). This is a strategy that doesn’t necessarily call for big acquisitions. In many cases, it will be possible to achieve revenue and profit growth through smaller, targeted acquisitions. Obviously, the perspective on every deal and market is different because of the market conditions and situation."

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